South Korean prosecutors seek 10-year jail term for accused Lone Star official

Published 6:00 pm, Tuesday, January 15, 2008

The prosecution is seeking a 10-year prison sentence Wednesday for the South Korean head of U.S. buyout group Lone Star Funds on trial for alleged stock price manipulation, a prosecutor said.

Prosecutors also asked for a fine of 4.2 billion won, or $4.5 million, for Paul Yoo, said Song Hai-eun, a senior prosecutor.

Yoo was indicted last year along with Lone Star for allegedly manipulating the stock price of the credit card unit of a local bank the fund owns.

John Grayken, chairman of Dallas-based Lone Star, denied the allegations last week when he testified at Yoo's trial.

Lone Star's efforts to sell its interest in Korea Exchange Bank, acquired in 2003, have been hampered by Yoo's trial and a series of other legal and tax disputes.

The fund has battled accusations that it conspired with government officials to understate the financial health of KEB to facilitate its acquisition.

Lone Star has consistently denied wrongdoing and has countered that its role in nursing the once troubled KEB back to financial health after acquiring it has been good for South Korea's economy.

Last year, HSBC Holdings PLC announced plans to acquire Lone Star's stake in KEB pending regulatory and government approval, which is not expected legal issues are resolved.

Lone Star terminated an earlier deal with Kookmin Bank, South Korea's top lender, due to the uncertainty over the legal cases.

Grayken, who has not been charged, arrived in South Korea last week to testify at Yoo's trial. He said Friday that prosecutors have banned him from leaving the country. Prosecutors would not confirm that, though said they wanted to question him.

Lone Star's troubles have drawn intense interest in South Korea, where there is a heated debate about the merits of foreign investment.